Vertical Restraints and the Market Power of Large Distributors

Vertical Restraints and the Market Power of Large Distributors 136 WILLIAM S. COMANOR AND PATRICK REY The policy implications of this second scenario are very different. First, these restraints may well have anti-competitive effects so there is a role for an active competition policy. Second, the restraints may limit the growth of rival distributors, as suggested above, or that of new manufacturers when the latter find it more dif- ficult to gain effective distribution of their products. As a result, vertical restraints become a more important problem for competition policy. We are particularly interested here in circumstances where large distributors have bargaining power over their current suppliers. To be sure, other economists have observed the importance of such markets. For example, Michael Porter noted that a retailer’s position relative to supplying manufacturers results from its influ- ence over consumers’ buying decisions, which is often very substantial. Similarly, Richard Heflebower wrote that where manufacturers supply branded products but “consumers have no strong preferences for one brand over several others ...the manufacturer ...is a beggar at the retailer’s office”. In various articles, Robert Steiner also emphasized that large retailers frequently dominate their suppliers so that market power lies at the distribution rather than the manufacturing stage of production. This result http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Vertical Restraints and the Market Power of Large Distributors

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Publisher
Springer Journals
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007857709649
Publisher site
See Article on Publisher Site

Abstract

136 WILLIAM S. COMANOR AND PATRICK REY The policy implications of this second scenario are very different. First, these restraints may well have anti-competitive effects so there is a role for an active competition policy. Second, the restraints may limit the growth of rival distributors, as suggested above, or that of new manufacturers when the latter find it more dif- ficult to gain effective distribution of their products. As a result, vertical restraints become a more important problem for competition policy. We are particularly interested here in circumstances where large distributors have bargaining power over their current suppliers. To be sure, other economists have observed the importance of such markets. For example, Michael Porter noted that a retailer’s position relative to supplying manufacturers results from its influ- ence over consumers’ buying decisions, which is often very substantial. Similarly, Richard Heflebower wrote that where manufacturers supply branded products but “consumers have no strong preferences for one brand over several others ...the manufacturer ...is a beggar at the retailer’s office”. In various articles, Robert Steiner also emphasized that large retailers frequently dominate their suppliers so that market power lies at the distribution rather than the manufacturing stage of production. This result

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 16, 2004

References

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